For assessing the Liquidity of a company, the Current Ratio is used. This ratio is calculated by dividing Current Assets with Current Liabilities. It provides information about a company's capability to pay its dues within a year. Current Ratio above 1 is preferred, and HERMES has a better liquidity position than SNEAK with Current Ratio 1.44 and 1.36 respectively. However, a very high Current Ratio is not attractive as it signifies that the firm is not utilizing its liquid assets properly. Since the Current Ratio is a snapshot of a company's liquidity position at a particular time and does not depict trends, it may not provide an accurate picture of a company's short-term liquidity or long-term stability.

For gauging the company's ability to pay off its dues without using inventory or financing, the Quick Ratio is used. A higher Quick Ratio indicates better Financial Stability and Cash Flow. Conversely, if the ratio is less than 1, the company may face difficulties paying off its debts. The Quick Ratio for SNEAK and HERMES is 0.64 and 0.87, respectively.

Asset Management Ratios provide insight into an organization's management of its assets. For shoe companies, the Inventory Turnover Ratio is crucial to assess their huge inventories' efficiency. The Inventory Turnover Ratio for Sneak is 5.47, while for Hermes, it is 10.12, which indicates the latter's inventory is turning over efficiently.

Day Sales of Inventory (DSI) is the number of days a company takes to convert its inventory into sales. A lower DSI means fewer days are required to convert inventory into cash. Hermes has a DSI of 28.18, while SNEAK's DSI is 47.97, indicating that Hermes is better at selling its product.

Total Asset Turnover compares the total sales with Total Assets as an annualized percentage to measure a company's ability to generate revenue or sales from its assets. The Total Asset Turnover Ratio is 1.75 for both SNEAK and HERMES, but a higher ratio signifies a company is effectively generating sales from its assets.

The Times Interest Earned (TIE) ratio is used to evaluate a company's Debt Management. It determines the number of times a company could cover its interest payment with pre-tax earnings. A TIE number of more than 2 is recommended. Sneak has a TIE of 3.02, while Hermes has a TIE of 2.15.

The Debt-to-Capital Ratio compares a company's total debt with its total capital. A higher ratio suggests that a company is riskier as it is funded by debt rather than equity. Sneak has a higher Debt-to-Capital ratio, indicating it has financing through debt.

In terms of Profitability Ratios, Sneak has better numbers than Hermes.

ROE is a financial metric that measures how effectively a company generates profits and indicates its overall profitability. The industry benchmarks serve as a reference point, and a ratio near the long-term S&P 500 average of 14% is generally considered acceptable. Based on Investopedia's website, Sneak's ROE is closer to the standard when compared to Hermes.

Return on assets (ROA) is a performance metric that reflects how well a company manages its assets to generate profits. The formula for calculating ROA involves dividing net income by total assets. A higher ROA indicates efficiency and productivity in managing assets to generate profits, while a lower ROA signifies the need for improvement. Sneak and Hermes have almost identical ROA, but Sneak has a slightly higher value than Hermes by 0.04%.

Overall, Hermes seems to have better liquidity and asset management ratios than Sneak, indicating that Hermes sells more products and manages its assets more efficiently. Hermes's inventory turnover suggests that their products may be more affordable than Sneak's products to enhance their competitiveness. Despite Sneak's higher-priced products, the company has a better profit margin, lower operating expenses, and lower financing charges based on the debt and profitability ratios. However, Sneak should pay attention to their inventory turnover and debt to capital ratios. To improve the inventory turnover ratio, Sneak can keep high-demand items and restock only when needed, contributing to more liquidity and less debt financing.

References:

Investopedia. (n.d.). Current Ratio Definition. Retrieved September 20, 2021, from https://www.investopedia.com/terms/c/currentratio.asp.

Investopedia. (n.d.). Asset Turnover Ratio Definition. Retrieved September 20, 2021, from https://www.investopedia.com/terms/a/assetturnover.asp.

Investopedia. (n.d.). Times Interest Earned Ratio Definition. Retrieved September 20, 2021, from https://www.investopedia.com/terms/t/tie.asp#.

Investopedia. (n.d.). Debt-to-Capital Ratio Definition. Retrieved September 20, 2021, from https://www.investopedia.com/terms/d/debt-to-capitalratio.asp#.

Investopedia. (n.d.). Return on Equity Definition. Retrieved September 20, 2021, from https://www.investopedia.com/terms/r/returnonequity.asp#.

Investopedia. (n.d.). Return on Assets Definition. Retrieved September 20, 2021, from https://www.investopedia.com/terms/r/returnonassets.asp#.